The economy is showing signs of recovery

Teikoku Databank said bankruptcies are down 15.4% from a year earlier to 1,321 cases, although the debts of companies which went bust rose by more than 10%.

"A decline in business failures among small- and mid-sized firms helped reduce the number of bankruptcies," Teikoku official Yoshifumi Suzuki said.

Analysts attribute the decrease to a pick-up in the economy and the restructuring and lending by official bodies to firms in trouble.

"Sales are rising and the profit recovery is spreading out more broadly in the economy and into smaller firms as well," said Richard Jerram, an economist at ING.

No change in interest rates

Official data published this week suggests the Japanese economy is on the mend.

"The economy is showing signs it is headed for a recovery," the Cabinet Office said in a monthly report released on Friday.

There are some good signs for the economy, but it has not reached the point of a self-sustaining recovery Bank of Japan Governor Toshihiko Fukui

In August's report, officials had warned that economic conditions were flat.

Shares in the benchmark Nikkei average have also bounced back 41% from a two-decade low in April of 7,600.

In addition, the Bank of Japan voted on Friday to leave interest rates unchanged following evidence of the economic upturn.

However, ministers are stopping short of declaring a full recovery, noting that deflation was maintaining its hold on the economy and that conditions for small businesses were still severe.

"There are some good signs for the economy, but it has not reached the point of a self-sustaining recovery," Bank of Japan Governor Toshihiko Fukui said on Friday.

There have been calls for a 5% cut in combined local and national corporate taxes, currently set at 40%, to boost the economy.